I love investing in passive income stocks. It’s not like I employ the dividends I receive to fund my lifestyle. Well, not yet. The idea is that reinvesting the cash I receive can significantly enhance the size of my final pension pot.

In my opinion, the London Stock Exchange is the best place to find dividend-paying stocks. It’s full of market leaders whose sturdy cash flows and diversified income streams deliver juicy dividends year after year. And here’s the gigantic news: After years of penniless share price performance, the dividend yields on many of these winning stocks are now sky high.

To take Basic health properties (LSE:PHP). This FTSE250 the dividend hero delivers a yield around 8% for both the next two years. Result? Investing £20,000 in a Stocks and Shares ISA could net you over £3,000 in dividends this year, completely tax-free.

In perfect health

The primary health properties are actually my favorite. It’s also one of the largest items in my passive income portfolio after increasing my investments last month.

So what makes it such a dividend winner? There are many reasons, including:

• 29 straight years of payout growth.
• Focuses on the non-cyclical medical real estate market.
• Long-term contracts backed by government bodies, which means reliable cash flow.
• A wide range of properties across the UK and Ireland (1,142 in total).
• Inflation-linked leases that protect profits and dividends from rising costs.

What really sets Primary Health apart – and leads to huge dividend rates for 2026 and 2027 – is its status as a real estate investment trust (or REIT). Under sector regulations, at least 90% of rental profits must be distributed to shareholders. This is in exchange for tax breaks.

Please note that tax treatment depends on each client’s individual situation and may change in the future. The content of this article is for informational purposes only. It is not intended to be and does not constitute any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

What’s the catch?

So what’s the downside to buying Primary Health shares for income? If interest rates rise, a company’s borrowing costs may enhance when it refinances, which will impact profits and dividends in the long run.

The FTSE 250 company also relies heavily on borrowing to grow its portfolio through expansion and acquisitions. If debt costs enhance, the company may withdraw its expansion plans, which will impact long-term earnings and dividend growth.

The good news is that Primary Health is on track to significantly reduce its loan-to-value (LTV) ratio this year. Most recently, the figure was 57%, reflecting its acquisition of rival Assura last year. However, this should decline to a more sustainable 40-50% level by the end of this year as asset sales and cost synergies begin.

Let’s talk about dividends

Primary Health is forecast to pay a dividend of 7.3p per share for 2026, marking the 30th consecutive annual enhance. Analysts also forecast another enhance to 7.5 p for 2027. Result? Huge dividend yields of 7.8% and 7.9% this year and next respectively.

All this means that £20,000 worth of Primary Health shares in an ISA could make dividends worth £3,271 tax-free. Assuming 2026 withdrawals are reinvested. I expect the company to remain one of the UK’s best passive income companies in the coming years.